Victoria’s Secret has few options with Sycamore deal in peril

Bloomberg

The retail shutdowns sweeping the country amid the coronavirus outbreak have put
L Brands Inc in a tough spot. With a deal to sell its iconic Victoria’s Secret brand now in jeopardy, things just got a lot worse.
The future of the ailing inner wear business is in limbo after Sycamore Partners said it wants out of the deal it struck just a few months ago to take a majority stake in Victoria’s Secret. In a court filing, the private-equity firm said steps L Brands have taken to survive the pandemic, including furloughing workers and failing to pay rent, violated terms of the original deal.
The allegations tanked L Brands’ stock and launched what could be an ugly war between the onetime bedfellows. L Brands, which was counting on the sale to bring in cash and help revive the lingerie brand, has already said it will fight to keep the deal alive.
Whatever the outcome, what’s clear is the retailer faces a difficult road ahead.
Despite Sycamore’s objections, the deal still isn’t dead. MKM Holdings analyst Roxanne Meyer still expects the tie-up to go through, though she said in a note that it could be “meaningfully” delayed in court. That could weigh on L Brands’ shares, which plunged 16% on April 22, and deepen animosity between the sides.
It wasn’t long ago that Sycamore and L Brands looked set for a happy marriage. When the deal was announced in February, Sycamore said it had “great respect and admiration” for L Brands and saw “significant opportunity to reinvigorate growth.”
Then the pandemic upended American retail. Victoria’s Secret closed its more than 1,000 US stores and furloughed most of its 88,000 store associates. Sycamore said that L Brands breached their agreement with the decisions it made during the Covid-19 outbreak and are “not capable of being cured.”
L Brands called the claims “invalid” and said it would fight for the deal, which was expected to close in the second quarter. The sale, which would take Victoria’s Secret private, would help L Brands with a much-needed turnaround of the brand — and one that could happen outside public scrutiny. That gives the company incentive to fight, even as some question the logic.
“The deal just doesn’t make sense to us as the world has changed,” Jefferies analyst Randy Konik said. “It’s that simple.” The coronavirus crisis could make it exceedingly difficult to find another buyer. Not only is Victoria’s Secret suffering from a catastrophic loss in sales due to virus-related store closures, but it’s a business that has lost market share and been mired in scandal for years.